Gap Inc. on Thursday said it’s close to naming a new CEO, but has shaken up its C-suite further as part of a major cost-cutting effort. The expense cuts will bring $300 million in annualized savings, roughly half in the back half this year; with that the company has identified a total $550 million in annualized savings.
In a major shift, Athleta CEO Mary Beth Laughton is out. Noting “product acceptance challenges over the past several quarters,” Gap Inc. Interim CEO Bob Martin said it’s time for new leadership. A new brand creative chief will join in May, he said on a conference call. Gap Inc. didn’t immediately respond to questions about who that will be.
The retailer, which also announced Q4 declines across its brands, eliminated the role of chief growth officer. Asheesh Saksena, who has been in that job, leaves March 24, per a filing with the Securities and Exchange Commission. Chief People Officer Sheila Peters will leave at year’s end and will help choose her successor.
Gap Inc. is tightening its belt amid continuing losses and disappointing results across its portfolio. While some of the softness was due to consumer pullback on discretionary spending, the company is also struggling with its own failure to produce apparel people want, analysts said. The company has suffered “a continual decline in market share over a long period of time,” according to GlobalData researchers led by Neil Saunders.
In Q4, the company’s net loss widened to $273 million from $16 million the previous year. For the full year, the company swung into the red with a $202 million net loss, compared to $256 million in net income in 2021. Net sales in the quarter fell 6.23%, with declines at all brands in several measures. Comp sales fell 5% year over year, with store sales down 3% and e-commerce down 10%. Gross margin contracted by 10 basis points to 33.6%.
The “product acceptance” problems at relatively small Athleta helped send net sales down 1% to $436 million and comps down 5%. But due to softness in demand from its lower-income customers, the conglomerate’s biggest brand, Old Navy, also struggled in the period. There, net sales fell 6% to $2.2 billion, and comps fell 7%. The company said the brand may also have made more holiday sales in the third quarter.
Longstanding troubles continued at namesake Gap, where overall net sales fell 9% to $1.1 billion, with comps down 4%; the shutdown of Yeezy Gap sapped growth by 2 percentage points in North America, where comps fell 5%. At Banana Republic, net sales fell 6% to $578 million, and comps fell 3%.
There were some bright spots in the report. Ending inventory was down 21% year over year. Comps are improving at Old Navy in Q1, thanks to changes in the merchandising assortment to include more items for occasion dressing, brand chief Haio Barbeito, who arrived last year from Walmart, said on the call. The brand now has momentum in women’s and is successfully addressing weakness in baby and kids, he said.
But overall the conglomerate “appears near-directionless,” according to Wells Fargo analysts led by Ike Boruchow.
Gap Inc. “is proving it is difficult to have four multi-billion dollar brands all comping positive at once,” Boruchow said.